MNI China Daily Summary: Thursday, December 27

     POLICY: China's de-leveraging campaign still faces severe challenges to

implement, as the economy remains driven by the growth of debt. The leverage

ratio will continue to rise as long as the government still rely on increased

debt levels to prop up overall GDP growth, said Li Yang, chairman of the

National Institution for Finance & Development(NIFD) on Wednesday.

     TRADE WAR: China and U.S. economic and trade teams are planning to meet in

January to conduct a face-to-face consultations, said Gao Feng, the spokesman of

the Ministry of Commerce during a presser in Beijing on Thursday. Gao confirmed

that the two sides have already made arrangements for meeting face-to-face next

month, holding frequent discussions about trade talks over the phone. Gao

refused to disclose further details about the exact date of the meeting.

     DATA: November industrial profits fell 1.8% y/y, a first y/y decline since

December 2015. This compared with October's 3.6% y/y gain. Accumulated profits

for Jan-Nov rose by 11.8% y/y, down from 13.6% y/y in Jan-Oct. November's drop

was mainly caused by slowing production and sales, increasing cost, and slowing

ex-factory prices, the National Bureau of Statistics said today.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY120 billion by

7-day reverse repos, and CNY30 billion by 14-day reverse repos today, a ninth

trading day that the central bank has added liquidity by open market

operations(OMOs). It resulted in a net injection of CNY30 billion given the

maturity of CNY120 billion of reverse repos, according to Wind Information. The

PBOC said today's OMO is to stabilize year-end liquidity.

     RATE: The 7-day weighted average interbank repo average rate for depository

institutions (DR007) increased to 2.7856% from Wednesday's close of 2.7502%,

Wind Information showed. The overnight repo average decreased to 1.7196% from

Wednesday's 1.9527%.

     YUAN: The yuan appreciated to 6.8660 against the U.S. dollar from

Wednesday's close of 6.8821. The PBOC set the dollar-yuan central parity rate at

6.8894 Thursday, compared with 6.8845 on Wednesday.

     BONDS: The yield on the benchmark 10-year China Government Bond was last at

3.2700%, down from the closing price of 3.3000% on Wednesday, according to Wind

Information.

     STOCKS: The benchmark Shanghai Composite Index closed 0.61% lower at

2,483.09. Hong Kong's Hang Seng Index decreased 0.67% to 25,478.88.

     FROM THE PRESS: Some provincial and municipal governments are planning to

issue bonds as early as January, earlier than in previous years, Shanghai

Securities Journal reported, citing an anonymous official at a local finance

department. Issuing in advance may help accelerate the expansion of new bonds

and support local finances, the newspaper said. Though the specific issuance

quota and timing need approvals by the Finance Ministry, the scale of local

government bonds is expected to expand for the year ahead, the official said.

     The further sharp expansion of household lending should not be encouraged,

as the high leverage ratio of Chinese residents is an increasing risk, The Paper

reported late Wednesday citing Li Yang, the chairman of National Institution for

Finance & Development(NIFD). The leverage ratio among residents has increased to

52.2% in the third quarter of 2018, from 49% in 2017, with the total debt by

households increasing to CNY46.2 trillion, The Paper said.

     Replenishing China commercial banks' capital will help boost lending,

better support the real economy, ease the financing difficulty of private and

small companies, as well as crack down the shadow banking, the Economic Daily

reported, citing Ma Jun, a member of the PBOC's Monetary Policy Committee. Ma's

comments came after the central bank's statement yesterday on the plan to launch

the issuance of perpetual bonds to help banks replenish capital. The measure

will also increase banks' capacity to resist risks and expand credits, which

will boost confidence in the capital markets, especially for banking stocks, the

Daily said citing Ma.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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